Some advisers would rather not talk about it at all. Some focus on managing it in the short term, more or less ignoring the long term. Others believe focusing on the long term prods clients to act.
The "it" is the cost of health care in retirement, and for the majority of advisers the topic and associated conversations can be as uncomfortable as a parent talking to their children about sex.
The reasons why many advisers shy away from discussing retirement health care costs are varied, as senior columnist Jeff Benjamin recently reported. Often, advisers feel ill-prepared and inadequately informed to provide answers. While some advisers say that clients are motivated to act after discussions about the hefty cost of health care in retirement — estimated to be about $285,000 for a couple now age 65, according to Fidelity, or about $388,000, according to HealthView Services, a health care cost provider to financial services firms — other advisers believe the numbers can be so overwhelming that clients freeze and don't do anything.
The biggest impediment to have health care cost discussions, however, is likely the sheer impossibility of knowing if or when clients will face an unexpected, costly health care situation. Planning for predictable, if rising, health care costs in retirement, such as Medicare premiums, co-pays and out-of-pocket drug expenses, is one thing; how to pay for the care of a spouse succumbing to Alzheimer's is something else.
Despite the difficulty in discussing health care costs, advisers are in a unique position to provide guidance on a subject that is central to the well-being of millions of Americans in retirement. They also have an obligation — if they consider themselves to be financial planning and wealth management professionals, not financial product salespeople — to provide that direction.
The majority of advisers do seem to be acting on that sense of professional obligation, according to the findings of the 2019 InvestmentNews Research Adviser Study. The study found that 67% of advisers include medical care or long-term care costs in retirement in their clients' retirement plans. Almost as many — 59% — include health care and medical care planning.
But these percentages were significantly lower than the share of advisers who include retirement income withdrawal strategies (92%) in their retirement strategies, the 82% who specifically include tax efficiency in those withdrawal strategies and the 77% who include Social Security claiming strategies to maximize total lifetime benefits.
Again, some of the reluctance to discuss medical and health care spending probably comes from the sense of having unsure factual footing. While the adviser study found that more than half of advisers either felt extremely knowledgeable and prepared when advising clients on their medical and health care expenses (12%) or very knowledgeable (40%), a significant 42% said they were only moderately knowledgeable and 7% said they were not knowledgeable at all.
But since study after study of investors finds that rising health care costs weigh heavily on their minds and is one of the leading drivers of anxiety in retirement planning, advisers should engage in discussions about the subject if only so clients can comfortably acknowledge and voice their concerns. Advisers can add value by shedding light on health care cost risks and helping to put them in perspective.
Discussions about clients ' own health history and that of close relatives, for instance, can help them frame probabilities concerning longevity and the outlook for their health as they age. Health care conversations also can prompt a reexamination of where to live in retirement, when to stop working and the optimal insurance coverage.
Ongoing discussions are likely to lead to a realization by advisers and clients alike that no one has the perfect answer to managing health care costs in retirement. But talking about it and crafting reasonable approaches to dealing with the issue are better than ignoring it.
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